Which Capital: Human, Social or Both?

hr social capital

I think, it is time to answer this question not only for all kinds of organizations, but also for whole nations. We have tried to answer it by conducting a research and writing an academic article. Believing in the importance of human and social capital, I have decided to share some ideas in this post. I also think that social media, and especially LinkedIn is a platform for developing social capital. I hope, sharing this post with you will create some added value to your professional knowledge and experience. Moreover, I hope that these ideas may be a source of inspiration for you, and they may trigger your creative potential.

Innovation as the Imperative for Sustainability

Today, growing global competition, volatile markets and higher customer expectations force the world of business to be in an everlasting state of change where continuous innovation is the one and only strategy for survival of individuals and organizations (Peters, 1997). As a result, innovation is essential. Suranyi-Unger (1994) has stated that organizational innovation is the introduction of any new product, process or system, and academicians such as Avermaete, Viaene, Morgan & Crawford (2003) have written that product, process, organizational and market innovation are the four types of innovation. These four different kinds of innovation are needed for the survival and also for the successful sustainability of people and businesses.

Integrated HRM Systems Instead of Isolated HR Practices

Stone (2009) has defined Human Resource Management as the use of people for attaining strategic business objectives. According to Mondy (2010), some of the HRM practices implemented by organizations are staffing, training and compensation. Huselid (1995) and Boselie, Dietz & Boon (2005) have stated that traditional human resource management research has taken a systematic approach to comprehend the bundle of high performance HRM practices in affecting business performance. To understand the relationship between HRM and organizational performance, Becker & Huselid (2006) have suggested the introduction of different HRM systems which target different organizational capabilities. Instead of single and isolated types of HR practices, researchers like Guesta & Conway (2011) have linked certain types of “bundles” or “systems” of HRM practices that have been named as high-performance work systems.

According to Laursen (2002), HR practices enhance each other, so HR practices are more effective in influencing innovation if they are applied in a form of integrated systems. As Gupta & Singhal (1993) have stated, HRM is an originator of innovation, and effective HRM can make an organization become innovative, but small amount of research has been conducted to capture the effects of particular HRM systems in forecasting innovation, so too much is still unknown about how HRM systems will add to organizational innovation. Although Schuler & MacMillan (1984), Van de Ven (1986), Schuler & Jackson (1987) have agreed on the significance of human resources for innovation, the synergy between HRM practices and organizational innovation has received little attention until recently (Shane & Ulrich, 2004). Moreover, the empirical research focusing on innovative HRM systems has just started (Laursen & Foss, 2003; Shipton, West, Dawson, Birdi & Patterson, 2006; Jimenez-Jimenez &Sanz-Valle, 2008).

Innovation and Intellectual Capital

Academics such as Wright, McMahan & McWilliams, (1994) and Becker & Gerhart, (1996) have stated that human resources play an important role in increasing organization’s competitive advantage since employees’ knowledge and skills can be the sources of competitive advantage, and Van de Ven (1986) has stressed that the grounds of innovation are ideas, and it is people who generate and develop ideas. The simple supposition in the relationship between them is that the innovation capacity of an organization is inherent in its employees’ competences and motivation. Stated differently, innovation is the serious enabler for organizational value creation and sustainable competitive advantage, and it is driven by organization’s capacity to manage its intellectual capital (Chen & Huang, 2009). Subramaniam & Youndt (2005) also have emphasized that the innovation capability of an organization is thoroughly interrelated to its intellectual capital.

Swart & Kinnie (2010) have stated that managers ought to develop HRM initiatives which aim to generate and refine intellectual capital composed of human, social and organizational capital, because they help an organization to improve its innovation capacity. As Youndt, Subramaniam & Snell (2004) have indicated, intellectual capital refers to the summation of all types of knowledge which organizations exploit for competitive advantage. The significance of intellectual capital for innovation has attracted researchers’ interest in defining its components and the process by which it augments the innovation capabilities of organizations. Human capital is defined as intellectual capital in the form of individual knowledge and skills of employees. Social capital is the collective knowledge which is rooted in the social relationships amongst employees.

HRM Systems, Human and Social Capital

Research has emphasized the role of HRM as a tool for managing human and social capital, and Youndt, Subramaniam & Snell (2004) have demonstrated that HRM investment has a noteworthy role in creating human and social capital. Subramaniam & Youndt (2005) have concluded that an organization’s efforts in hiring, training and implementing other HRM practices need to focus not only on maintaining their employees’ skills and expertise, but also on developing their abilities to collaborate and share information and knowledge. Consequently, Donate, Pena & Sanches de Pablo (2016) have researched high-profile HR practices and collaborative HR practices that are crucial for human and social capital development.

Managerial Implications

As it is stated in the literature, human capital development and social capital development are critical strategic factors for enhancing organizational innovation capabilities. In other words, it should be emphasized that all managers and specifically HR managers should not ignore human capital development and social capital development. This study offers some advice to help all managers but especially HR managers to understand how to integrate some HR practices into high-profile personal and collaborative HRM systems, and how to implement these for developing human and social capital so that they can influence innovation capabilities. As a result, the findings of this research have several managerial implications.

The research reveals the importance of combining HRM practices for enhancing human capital. It recommends that organizations have to promote high-profile personal HRM system, and HR and all other managers should engage in supporting human capital development since it affects innovation. Moreover, HRM practices in a collaborative HRM system should be implemented for enriching social capital that can also lead to innovation. HRM systems play a fundamental role in aiding employees, teams and organizations to apply their individual and collective knowledge and creativity so as to form the core organizational competences required for product, service and process innovations. This research also shows that the critical factors for innovation are actually intangible, so all managers including HR managers should be aware and skillful in managing intangible variables such as human and social capital.

Finally, the research findings reflect that HRM systems indirectly influence innovation capability through the mediating effects of human and social capital development. Thus, human and social capital developments play a mediating role to link HRM systems and innovation capabilities. As a result, it should be underlined that if managers overlook the human and social capital development, they cannot directly boost innovation. In order to increase innovation, managers have to use the HRM systems and apply them for developing human and social capital. To sum up, the present study helps managers to better understand how to implement HRM systems so as to increase innovation through the mediating effect of human and social capital development.

If you want to read the whole article, you can reach it via this link.

(Posted also on LinkedIn Pulse)

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